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Resilience makes Washington ‘Best City’

Nation’s capital rises to the top of MarketWatch annual ranking

By

RussBritt

LOS ANGELES (MarketWatch) — It takes a resilient economy to ride through the Great Recession — and it doesn’t hurt to have the world’s most powerful government in your backyard.

Both of those could apply only to Washington, D.C., as the nation’s capital rose to the very top of MarketWatch’s 2010 annual ranking of the Best Cities for Business, beating out such cities as Omaha, Neb., Boston and Des Moines, Iowa.

Washington has made the most out of having the U.S. government, a very large customer for any company, to keep it chugging during the tough times. But the region also has seen massive expansion in suburban towns in Virginia and Maryland over the years that has boosted its economy.

“Washington’s been adding a tremendous number of jobs for a number of years,” said Kevin Klowden, a managing economist at the Milken Institute in Santa Monica, Calif. Klowden and other institute researchers recently performed their own study on the best cities for business and ranked Washington high on their list as well, sixth overall and tops among major metropolitan regions.

In the fourth year of doing the study, MarketWatch found cities that might have ranked higher in years past, but fell down the list as they continued to suffer the ill effects from the 2008 economic plunge. The strong truly survived, as those that performed well in the 2010 study proved their mettle under a rigorous test in a number of new categories.

The nation’s capital wasn’t at the very top of the class in MarketWatch’s study on how cities fared this past year, but Washington was solid in virtually all metrics checked and benefited from the addition of some new categories.

MarketWatch took a hard look at how cities have tried to contain their jobless rates in the past year and how they have done from the time the economic boom reached its apex in 2006 to today.

The statistics proved revealing and surprising, as a number of metro areas that normally would rank high in boom times such as Bridgeport, Conn., and San Jose, Calif., were well down the list because of low economic stability rankings. In fact, California did poorly in general, with six of its cities in the bottom 10.

How they scored
Scores of all 102 cities in MarketWatch annual survey. Company score
measures the concentration of businesses within a metro area according to
several gauges. Economic score looks at metrics including
unemployment, job growth, population growth, personal income and local GDP.

Rank

City

Total
Score

Company
Score

Economic
Score

1

Washington

1100

585

515

2

Omaha

1072

586

486

3

Boston

1071

595

476

4

Des Moines

1057

585

472

5

Minneapolis

997

601

396

6

Denver

980

599

381

7

Richmond

957

527

430

8

New York

950

542

408

9

Harrisburg

939

530

409

10

Seattle

932

501

431

11*

Durham

896

375

521

11*

Salt Lake City

896

455

441

13

Houston

895

468

427

14*

Bridgeport

894

596

298

14*

Portland, Maine

894

379

515

16

Madison

893

370

523

17

Raleigh

884

440

444

18

Pittsburgh

882

435

447

19

Oklahoma City

881

432

449

20*

Dallas

872

463

409

20*

Milwaukee

872

528

344

21

San Antonio

871

368

503

23

Nashville

860

455

405

24

Charleston

850

387

463

25

St. Louis

848

562

286

26

Chicago

847

534

313

27

Tulsa

844

445

399

28

Charlotte

840

501

339

29

Philadelphia

836

479

357

30

Little Rock

834

389

445

31

Austin

819

349

470

32

Virginia Beach

817

319

498

33

San Francisco

816

565

251

34*

Baltimore

813

410

403

34*

Honolulu

813

282

531

36

Columbus

812

422

390

37*

Kansas City

800

458

342

37*

San Diego

800

482

318

39

San Jose

781

554

227

40*

Chattanooga

777

381

396

40*

Memphis

777

463

314

42

Boise

776

442

334

43

Atlanta

768

475

293

44

Wichita

752

315

437

45

Hartford

737

413

324

46

Columbia

735

269

466

47*

Buffalo

729

293

436

47*

Jackson

729

337

392

49

Phoenix

727

360

367

50

Jacksonville

722

425

297

51T

Birmingham

721

397

324

51T

Providence

721

380

341

53

Knoxville

720

305

415

54

Colorado Springs

715

312

403

55

Louisville

711

383

328

56

Portland, Ore.

703

358

345

57

Akron

699

342

357

58*

Baton Rouge

694

243

451

58*

Miami

693

411

282

60

Cincinnati

691

357

334

61

Los Angeles

686

463

223

62

Greenville

680

340

340

63*

Allentown

677

266

411

63*

Lancaster

676

258

418

65

Toledo

671

377

294

66

Cleveland

670

465

205

67

Albany

666

252

414

68

Augusta

661

231

430

69

Palm Bay

659

334

325

70

Poughkeepsie

656

207

449

71

Indianapolis

650

374

276

72

Greensboro

646

329

317

73

El Paso

639

233

406

74

Rochester

632

318

314

75

Las Vegas

627

384

243

76

Dayton

619

290

329

77

New Orleans

617

374

243

78

Ogden

614

211

403

79

Orlando

605

302

303

80

Tampa

602

367

235

81

Springfield, Mass.

589

192

397

82

Syracuse

584

224

360

83

Provo

578

198

380

84

Tucson

557

173

384

85

Oxnard

556

345

211

86

Detroit

533

368

165

87

Cape Coral

525

249

276

88

Grand Rapids

516

286

230

89

Lakeland

515

210

305

90

Worcester

493

98

395

91*

Albuquerque

488

176

312

91*

McAllen

488

70

418

93

Bakersfield

475

118

357

94

Bradenton

463

275

188

95

New Haven

457

163

294

96

Riverside

442

184

258

97

Sacramento

436

153

283

98

Youngstown

429

194

235

99

Modesto

428

193

235

100

Scranton

421

188

233

101

Stockton

325

84

241

102

Fresno

279

41

238

* Tie

Plus, the MarketWatch survey added four new metrics, bringing the total to 14. Part of that included an extra data point on unemployment and one on personal income growth, each of which are designed to give a better picture on how various regions have performed during the recession. There also were new metrics pertaining to regional GDPs, with a focus on tourism and military contributions to local economies.

Washington beat out 101 other cities for the honor, as MarketWatch looked at all metro areas with a population of 500,000 or more, ranging from New York to the smallest city included in the ranking, Durham-Chapel Hill, N.C. Durham is a new addition, having crossed the 500,000 threshold last year.

Here’s the top 10 list. A total of 102 cities are rated against each other in 14 categories. The best score that any city could get in any single category/metric is 102. The highest possible overall score is 1,428:

1. Washington, D.C. — 1,100 points: The nation’s capital has been steadily rising up the top 10 list during the four years MarketWatch has conducted the survey, and it placed second in 2009. But a number of factors combined to help it take the top prize in 2010.

The addition of several new metrics, particularly those pertaining to tourism and military GDPs certainly didn’t hurt. Being the seat of government not only boosts your military economy, it comes in handy when tourists want to see how and where you do business.

“Washington has benefited tremendously from the expansion of the federal government,” said the Milken Institute’s Klowden.

A big-spending government also creates a ripple effect on the economy, not only aiding in the creation of new businesses but also helping to draw established companies to the region.

Just ask Los Angeles, ranked 61st in our survey. The nation’s second-largest metro area is notorious for offering low-hanging fruit to competing local economic development departments throughout the country that seek to poach companies and jobs away from Southern California.

Washington has been a key beneficiary of late, snatching away at least three major companies from the region in the last 2½ years: Computer Sciences Corp.
CSC, -16.88%
, privately held Hilton Worldwide and aerospace giant Northrop Grumman Corp.
NOC, +1.20%

Northrop is the last of the major defense contractors to move closer to its customer, the U.S. government. In recent years, others have done the same, most notably Lockheed Martin Corp.
LMT, +0.89%

Local economic development officials say, however, that it’s not just in government-related work that the economy is growing.

“We do obviously benefit from some inherent strategic advantages,” said Matt Erskine, executive director for the Greater Washington Initiative. “But if you look at the last 20 years, the regional economy has diversified tremendously.”

Erskine says the region has gained jobs in business services, health care, education and hospitality in recent years.

“Our strategic advantages have attracted companies large and small,” he said, adding both foreign and domestic firms have set up shop in the region. He points to Washington’s high ranking among cities hosting Russell 2000 companies, noting many of those have a strong upside in terms of growth.

Of the 14 metrics that MarketWatch used to gauge what constitutes the best cities for business, Washington placed in the top 10 on three metrics, and in the top 25 on nine data points. Washington never was at the top of the list on any of the categories included but was consistently strong, placing in the top half in all but one metric.

Even in the one category where it fell below the mean, Washington wasn’t far off, placing 53rd when its job growth was measured against its population growth. But it’s been adding residents at a brisk pace, plus it ranked fifth in keeping down its unemployment rate over the past four years, and 13th in growing jobs during that time.

2. Omaha, Neb. — 1,072 points: Last year’s third-place finisher moved up a notch in the standings, and was at the very top of the class in keeping down unemployment and in the number of Forbes Private Companies.

Omaha, of course, is home to Berkshire Hathaway
BRK.A, -0.31%
, the company run by investing guru Warren Buffett. But it also is the base for a number of other companies, ranging from agricultural behemoth ConAgra Inc.
CAG, -0.33%
and construction giant Kiewit & Sons – a privately held firm -- to small-cap ethanol producer Green Plains Renewable Energy.
GPRE, +0.74%
.

Omaha’s diverse economy probably has helped it more than any other city to keep its jobless rate down, as it went from a paltry 3% in 2006 prior to the meltdown up to 5%, the national average in a prosperous year. That two-point increase was the smallest of all cities in the study.

Omaha’s small size, however, hampered it in creating jobs over the past year and its population didn’t grow too much. That prevented it from taking the top spot.

Omaha joined the MarketWatch study in last year’s survey, which was expanded to include a wider range of cities. It now looks to be a permanent resident of the top 10 and could catapult to the top spot soon.

3. Boston — 1,071 points: Beantown narrowly missed out on the second spot by one point, but remains a perennial contender. Boston was fifth last year, second in 2008 and fourth in 2007.

Again, a diverse economy with a mix of old economy industrial giants, financial services firms and major players in new-world technology — ranging from medical device makers to biotech companies and database producers — all contribute to keeping Boston near the top of the heap year after year.

The secret to Boston’s success is its more than 50 higher-learning institutions, ranging from Harvard University and the Massachusetts Institute of Technology to Boston University and the Episcopal Divinity School, says Jim Klocke, executive vice president of the Greater Boston Chamber of Commerce’s public policy group.

“They turn out tens of thousands of new grads every year, a number of whom stay here,” Klocke said. “It feeds the whole innovation cycle.”

Klocke says it’s not easy keeping its business-friendly environment with rising costs and an increasingly expensive region to do business. Economic development officials in the region are trying to stay ahead of the curve and keep enlisting companies to move to the area and take advantage of its human resources.

4. Des Moines, Iowa — 1,057 points: Last year’s top finisher, Des Moines scored in the top third in 10 of the 14 metrics, and in the top half on three of the other four. But Des Moines’s unemployment rate went up over the last year, putting Iowa’s biggest city in the bottom fifth in that category and unseating it from the top spot.

Being at what many consider the crossroads of the nation hasn’t hurt Des Moines. It’s where Interstate 35, which goes from Canada to Mexico, crosses paths with Interstate 80, a coast-to-coast highway.

One company that has reaped the rewards of that is Casey’s General Stores
CASY, +0.64%
, which operates 1,600 convenience marts in nine surrounding states.

Casey’s has thrived in Des Moines’s business-friendly environment, says Bill Walljasper, the company’s chief financial officer. Workers’ compensation rules as well as the overall business climate make it possible for the company to grow. Founded 42 years ago, Casey’s is headquartered in suburban Ankeny.

What is Iowa’s greatest strength?

“I would say the people,” Walljasper said. “I always like coming back home to the Midwest.”

5. Minneapolis-St. Paul — 997 points: The Twin Cities won the first two “Best Cities” rankings in 2007 and 2008, then dropped to fourth last year when the study was expanded to include more than 100 metro areas. But the region remains strong in a number of key metrics.

Minneapolis is among the top three in the concentration of Fortune 500 companies within its metro region as well as the U.S. Census Bureau’s count of firms and establishments. It’s also in the top 25 in six other categories.

Minneapolis stumbles a bit, though, when it comes to such metrics as GDP and personal income growth, as well as population growth and the number of jobs vs. population.

Still, it remains a top five city for business and shows no signs of falling out of the top echelon of metro regions. While it may seem difficult to attract newcomers to the city’s frigid climes — particularly with recent images of winter bearing down on and tearing the Metrodome roof — locals insist that those who come don’t want to leave.

“You have to embrace winter,” said Cathy Polasky, director the city’s economic development department. “Anyone who’s been here realizes that once you dress for winter, it’s a great place to be.”

6. Denver — 980 points: The Mile-High City is another perennial squatter in the top 10, ranking second, third and seventh in 2007, 2008 and 2009, respectively.

The region is among the top 20 in six of the seven metrics that measure concentration of companies, ranking seventh among all cities in the Census Bureau’s survey. It also was in the top half in all but two categories.

But it was in the bottom quarter both in personal income and in improving the employment picture from last year. Its jobless rate rose half a percentage point in that time frame.

Still, Denver seems to have no trouble attracting new companies, or in the case of dialysis-clinic operator DaVita Inc.
DVA, +1.37%
, in creating a home base.

Up until a couple of years ago, though, the operator of 1,600 dialysis treatment centers throughout the nation never really had a central office. Its executives were scattered throughout the country, said Scott Drake, executive vice president for the company’s Rocky Mountain region.

DaVita officials were traversing the country monitoring the operations of its dialysis centers, and generally had no home. But DaVita decided that it was time to create one, and so CEO Kent Thiry came from Northern California and CFO Richard Whitney moved from Southern California to Denver and create a headquarters staff of roughly 150 people.

Denver’s central location was key, along with the fact DaVita already had offices with about 250 in suburban Lakewood.

“Over time, this move will lead to millions of dollars in savings,” Drake said, adding: “It has very much become a center of gravity for us.”

7. Richmond, Va. — 957 points: Richmond continues to reap the rewards of being in fairly close proximity to this year’s top finisher, Washington, D.C. After a one-year hiatus from the top 10 last year, Richmond came back to claim a spot once again.

Richmond boasts the best of both worlds; it’s about an hour and a half to metro Washington by car, yet it’s a lower-cost, relatively smaller city. When times are hard, it doesn’t necessarily feel the pain as much.

Richmond scored well, particularly in its concentration of S&P 500 companies. But it ranks low in tourism and personal income. While it has a large number of companies for its size, it didn’t have a particularly strong showing in creating jobs over the last year, or the last four years. Still, it’s unemployment rate over the last four years remained relatively low.

“We didn’t have as much of a recovery, but we didn’t have as much of a loss,” said Kim Scheeler, chief executive of the Richmond Chamber of Commerce.

8. New York — 950 points: The Big Apple’s sheer size long has been, and continues to be, a magnet for business.

It ranks in the top 25 in eight of the 14 categories, scoring second place in the Census Bureau’s business metric. In three more categories, it’s in the top half.

New York, of course, is not a military center and so it ranked low in that department. But it also had a smaller rise in population relative to other regions, thus aiding it to seventh place in jobs growth vs. population growth.

But the one area where there might be room for significant improvement is in personal income. The city that never sleeps was in the bottom 10 in the category.

This is New York’s first visit to the top 10 since MarketWatch’s initial study, in 2007, when it held the same spot.

9. Harrisburg, Pa. — 939 points: Harrisburg benefits from being a small city that gets a large positive effect by having a few, influential companies in its backyard – and was catapulted into the top 10 by a series of new metrics included this year.

The city jumped 25 spots from 34th place in 2009 to reach ninth this year, and rates as one of the most improved cities. Harrisburg scored high on a number of new metrics, ranking in the top third in tourism and military GDPs, was in the top 10 in personal income.

It also ranks high in the concentration of Russell 2000 companies, Forbes Private Companies and, of course, benefits from having the Hershey Co.
HSY, +0.36%
in its metro region.

But it might be tough for Harrisburg to hang on to this spot as next year’s criteria will evolve, and different statistics measuring economic stability will be used.

10. Seattle — 932 points: The hub of the Pacific Northwest also made a precipitous climb into the top 10, as it ranked 31st last year due to some poor showings in the job-creation department.

Seattle was in the bottom fifth in its jobless rate improvement between 2008 and 2009, thus creating a favorable comparison when this year’s stats looked at the same metric between 2009 and 2010. Seattle managed to climb into the top half by reducing its jobless rate by a third of a percentage point, bringing it down to 8.7% in September.

Still, Seattle did well in jobless comparisons between 2006 and 2010, and in keeping it down during those four years. And it ranked in the top fifth among cities in creating jobs relative to its population.

The one area where Seattle was particularly poor was in the number of Forbes Private Companies. No private firms from the magazine’s list reside in the region, and since it is the largest city without a Forbes company, it ranks dead last.

The region’s natural beauty and diverse culture long has been a selling point for the region. Rick Holley, chief executive at Plum Creek Timber Co.
PCL, +33.33%
, a real-estate investment trust specializing in timberland says he could be in any part of the country, but chose Seattle for the same reason that such giants as Microsoft Corp.
MSFT, +0.00%
, Costco Wholesale Corp.
COST, +1.07%
and Amazon.com Inc.
AMZN, -0.13%

“We want a place where we have that ability to attract and retain people. We have that here,” Holley said. “We have virtually no turnover here in our executive ranks. People like it here. They want to live here.”

Honorable mention: This year’s newest addition to the study, Durham-Chapel Hill, just missed making the top 10, tying with Salt Lake City for the 11th spot. Salt Lake usually gets an honorable mention, or makes the top 10, as it did last year. Both had 896 points.

Houston wasn’t far behind with 895, and Bridgeport, Conn., a top 10 finisher last year, was tied for 14th with Portland, Maine, at 894 points. Madison, Wis., was one behind them at 893 points.

Bridgeport is the strongest of all cities in the score measuring the concentration of companies, but it was at the very bottom of the barrel when it came to personal income. Census figures showed the city’s residents lost 6.8% of their personal income.

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